Disney Board Hits Back at Dissidents Directors Accuse Roy Disney And Gold
of Distortions In Campaign Against Eisner

By BRUCE ORWALL
Staff Reporter of THE WALL STREET JOURNAL

Walt Disney Co.'s board launched a counteroffensive against criticisms made
by former board members Roy E. Disney and Stanley Gold, the latest sign that
Disney is taking very seriously the dissident directors' campaign against Chairman
and Chief Executive Michael Eisner.

Messrs. Disney and Gold quit Disney's board last year, calling on Mr. Eisner
to resign and later asking shareholders to withhold support for him and three
other directors at Disney's annual meeting March 3.

The company has said little publicly about the former directors' assertion
that Mr. Eisner's two-decade run as Disney's leader should end.

But Monday, Disney's 13-member board fired back with its most detailed response
to the dissidents yet. In a letter to shareholders, the board accused Messrs.
Disney and Gold of waging a "misleading and distorted campaign" against
the company and "putting their own interests ahead of yours." Messrs.
Disney and Gold replied with a letter that said the board "continues to
resist independent, thoughtful consideration of opinions raised in opposition
to Michael Eisner."

While the rancorous Disney battle isn't a full-blown proxy fight -- Messrs.
Disney and Gold haven't proposed an alternate slate of directors for shareholders
to consider -- Disney is responding almost as if it were. Both sides have lobbied
for support from institutional shareholders and corporate-governance advisers.
Disney, based in Burbank, Calif., is holding an investment conference in Orlando,
Fla., later this week, while Messrs. Disney and Gold are planning their own
shareholder "forum," to be held the day before Disney's annual meeting
in Philadelphia.

The board's letter details ways in which it believes that the company's financial
performance and its corporate governance practices have improved recently.
It then uses those improvements as the foundation for a broad attack on the
credibility and motives of Mr. Disney -- the nephew of the late Walt Disney
-- and his longtime business associate, Mr. Gold.

"You should be disturbed by this attack, which comes at a time when your
company is achieving very positive results," the letter states. Shareholders,
it adds, should "wonder how the best interests of shareholders are served
by trying to distract the board and management at a time when all energy and
resources should be devoted to forwarding the company's own momentum." The
directors also allege that Messrs. Disney and Gold "fail to tell you they
voted to approve, and in some cases championed, the very business decisions
they now condemn."

The dissidents, in turn, maintained their critique of Disney's performance
and disputed many of the claims in the Disney letter as misleading. They said,
for example, that their votes for investments like Disney's often-criticized
acquisition of Fox Family Worldwide Inc. "were based on projections provided
by management to the board" which never were achieved. "We expected
better of you," the dissidents' letter concludes.

Messrs. Disney and Gold have yet to demonstrate how much support they have
among major Disney shareholders. Some have suggested that, while small individual
shareholders may be moved by Mr. Disney's fight against the company that bears
his family's name, institutional holders are likely to back Mr. Eisner because
of the company's improving earnings and stock price. Indeed, Disney's fiscal
first-quarter earnings, scheduled to be released Wednesday, are expected to
be especially strong because of the DVD release of hit films like "Finding
Nemo" and "Pirates of the Caribbean: The Curse of the Black Pearl."

Yet Disney can't ignore the threat the men represent. Mr. Eisner took a hit
recently when Pixar Animation Studios abruptly said it would end its successful
partnership with Disney, a move that seemed to exploit Mr. Eisner's current
vulnerability.

And under a proposed rule being considered by the Securities and Exchange
Commission, if 35% of shareholders withhold their votes for one or more directors,
the company in the following year could be compelled to give major shareholders
access to company proxy ballots. So if Messrs. Disney and Gold reach the 35%
threshold, next year the company could be forced to include alternate board
candidates on its proxy.

At the same time, Disney faces some near-term disadvantages in countering
Messrs. Disney and Gold. The former directors are campaigning under the guise
of an "exempt solicitation," which allows them to communicate with
shareholders without having to incur the trouble or expense of filing a proxy
statement. An exempt solicitation also requires somewhat less rigorous disclosure
than would be required under a proxy solicitation, though Messrs. Disney and
Gold have regularly filed their missives with the SEC.

The primary weapon the men have used so far is their Web site, Savedisney.com,
where they post almost daily criticisms of Mr. Eisner's performance and the
company's strategy. The men recently made their case against Mr. Eisner and
three other directors in a letter sent to holders of 1,000 or more Disney shares.
They also posted on the Web site an "open letter" to George Mitchell,
the former U.S. senator who serves as Disney's presiding director; and they
have arranged for travel discounts for shareholders wishing to attend the annual
meeting.

Disney, meanwhile, will make its case to Wall Street at its analysts' meeting
later this week. But it also appears to be trying to get its message across
in more subtle ways: The company Monday placed unusual full-color newspaper
ads -- pegged to no specific product -- which featured a giant Mickey Mouse
and hailed Disney as "the world's leading family entertainment brand." A
Disney spokesman called them "brand" ads.

In 4 p.m. composite trading Monday on the New York Stock Exchange, Disney
was at $23.77, up 42 cents.